“I couldn't have articulated ‘digital’ four years ago the way I can now,” says Natarajan Chandrasekaran, 52, CEO and managing director of Tata Consultancy Services. It sounds like the chief of India’s largest IT firm, No. 10 on the Fortune India 500, is being characteristically modest. But to those in the industry, his words carry weight; for them, the ability to define digital today is akin to finding the holy grail.

To be sure, Chandra knows he doesn’t have an easy definition (which is why he carefully uses the word “articulate” instead of “define”). What he knew, even back in 2011, was that he needed to at least start the conversation about digital within the organisation, and move the vast company he headed towards a digital future. He knew that digital forces were changing enterprises profoundly, as mobile apps took on a life of their own and became competition in the brick-and-mortar universe; the likes of Amazon and Airbnb and Uber were gathering momentum internationally.

Chandra was among the early IT bosses who saw the disruptive potential of companies that were created for and by the digital world. Yes, the likes of Accenture and Cognizant recognised the force of digital and had already set in motion their digital plans, but none of them had the big problem that Chandra faced: getting upwards of three lakh employees ready for the digital age.

The magnitude of the problem did not strike me immediately. Like most people not in the industry, I assumed that an employee of an IT company was, almost automatically, digitally savvy. But a little research showed how unfounded my assumption was. Since 1999, Indian IT companies have dominated the offshore delivery space by undertaking large application development and maintenance projects, which typically paid depending on the number of engineers a company threw in. Broadly, digital involves moving from people-dependent systems to automated ones; as an organisation, TCS had to train its people to be able to advise customers on digitising their processes. It’s a mammoth task, but because Chandra had embarked on it early, the behemoth that is TCS seems prepared for the digital age.

“Digital enhances a client’s business processes,” says Aarthi Subramanian, executive director on the TCS board and global head of Delivery Excellence Group, TCS. “As you reimagine it for customers, your ability to engage with their business and play a larger role becomes part of the programme. That is where we can make a difference.”

Consider this. In a previous era, TCS fulfilled different needs for Big Retail: improving their supply chain efficiencies, and catering to the technology requirements by maintaining retail companies’ backend systems. Today, retail companies need data analytics platforms that can help them understand customer preferences, and procure and supply accordingly. Otherwise, the likes of Amazon will continue stealing Big Retail’s lunch. Now, TCS and its clients have to be aligned to focus on the end-customer’s requirements, because Amazon is doing this in real time. Big Retail has no choice but to compete on the digital front, and TCS has to be ready to cater to these new needs.

It’s something that’s playing out across industries. Large hospitality chains like the Marriott Group are rethinking customer experience to counter Airbnb. In oil and gas, Exxon and Mobil have been pushed to adopt loyalty points-based fuel cards, in turn disrupting financial services companies such as credit card vendors. The banking, financial services, and insurance (BFSI) players have been among the hardest-hit in the digital age, scampering to protect their turf as customers take to innovations like Apple Pay. (TCS derives over 40% of its $15.5 billion revenue from BFSI alone.)

It’s a business imperative for organisations to promote digital thinking. In any organisation, working to change mindsets is an uphill task; when you’re trying to change the way a 48-year-old legacy IT company that employs 345,000 people thinks, that’s no hill, it’s a mountain to scale. But Chandra is not a committed trekker for nothing. (I met him shortly after he returned from a challenging Himalayan trek.) Step by step, he’s getting TCS to think digital; rather than waiting for clients to migrate to digital and then demand digital solutions, he has got at least a third of TCS staff to proactively engage with digital.

Chandra has been drilling home digital thinking at the company offsite in Goa every January, where more than 500 senior managers converge. “Yes, [pushing digital] may harm your business [in the short term],” Chandra is known to tell them. “I am going to scream at you if your quarterly revenues suffer. But you need to keep focussing on digital and advising your clients on the right thing to do.”

To be sure, it’s not a crisis yet. TCS is at least four quarters ahead in revenue from its biggest rival Cognizant. It is also almost twice the size of Infosys. But that lead is largely a legacy of the offshore delivery era. The rise of digital has levelled the playing field for far smaller competitors (such as the Rs 49,660 crore Wipro Technologies, which poached one of Chandra’s key lieutenants, Abid Ali Neemuchwala, last year and elevated him to CEO this January). Digital platforms have also dramatically lowered the entry barrier in the tech business, making it impossible to pin down where the next snipe may come from. So what’s Chandra doing?

Step one. Learning. To reassure his clients, his employees, and impatient stock analysts, and to clear the cobwebs around digital thinking, Chandra started out by sending his massive crew back to school. That was the beginning of what is possibly the largest retraining and reorientation exercise ever undertaken in the Indian IT industry. Enter iON Learning Exchange, the TCS training platform on the cloud. Insiders say that Chandra evangelised the concept of “nano-courses” within the company at least a year before the well-known massive open online courses platform Udacity offered nano-courses for working professionals in 2013.

“I want glassrooms, not classrooms,” Chandra told Venguswamy Ramaswamy, global head of iON, referring to mobile phones. “Remove teachers. Learners should be self-organised and self-directed. They should be able to learn anytime, anywhere.”

By March last year, 30,000 TCS employees had taken 11,000 courses on iON Learning Exchange. In effect, in FY15 TCS staff underwent 2.59 million days of online training and earned over 72,000 new certifications. By the end of this fiscal, the company expects to have another 100,000 employees digital-ready through iON.

With iON, TCS is able to use digital tools to train employees at scale. Such a learning format promotes a sense of autonomy. In the Internet era, employees have to deal with ambiguity, and spot and solve complex problems. Chandra was clear that the best way to encourage independent, digital thinking was through online modular courses. (The format also ensured that operations are not affected, a problem that dogs several other organisations trying to retrain employees.)

The platform has gone far beyond supporting employee training: It has helped TCS eat its own dog food—a Microsoft coinage (that has made a comeback via Google) that refers to the practice of testing and promoting products internally before rolling it out to the world. Initially, iON was conceptualised as a cloud computing platform aimed at allowing small and medium businesses to use TCS’s infrastructure. Internal testing and the success of iON’s Learning Exchange showed iON’s potential in the education and training space. The platform is used today to conduct competitive examinations. iON is now poised to become the first TCS platform to breach $100 million in revenue from domestic clients. This year, TCS plans to take it international.

When iON was launched, many within the organisation saw it as a threat to the company’s DNA: focussing on automation of processes rather than on throwing platoons of coders into solving a problem was completely against accepted practice. With iON, a client, say an auto manufacturer, could get on-demand analytics by logging in, rather than going through an army of TCS associates. Chandra, himself just a couple of years old as CEO, entrusted the fledgling business with about 135 customers (then known as TCS Small and Medium Business) to Ramaswamy.

Since then, its team of thousand-odd engineers has made a disproportionate impact. In the past 24 months, iON has been used for the foremost entrance exams in India, including the Common Admission Test, the IIT-GATE, and the AIIMS entrance, processing the tests of some 40 million candidates. Since 2013, iON has also been used to evaluate over 3 million answer books of the Central Board of Secondary Education 10th standard examination. Teachers go through scanned images of a student’s answer book, and evaluate online. Students can access their answer books post evaluation and see how they were scored. “Look at the transparency. [This is the best example of] how digital can redefine the end-user experience at scale,” says Ramaswamy, who claims iON is now one of the largest digital platforms in the world.

For Chandra, platforms like iON, which can be priced on a licensing, outcome-based, or even pay-per-use basis, are central to remaking TCS. “Intellectual property and not headcount will play a big role in driving growth,” he says. That’s where R&D—TCS researchers published over 300 papers in journals and conferences in the 2015 fiscal—becomes crucial. In all, 509 patents were filed in that 12-month period, taking the tally of filed patents to 2,277. So far, TCS has been granted 206 patents.

TCS has software products like Asset Leverage Solutions based on IP. “The IP will get leveraged. Sometimes we will get licence revenues, in some cases we are getting subscription [or servicing revenues],” Chandra explained in an earnings call. TCS’s longest-running suite of services on the BaNCS platform (for BFSI clients) is a part of Asset Leverage Solutions, which with other digital platforms grew 33% in October over the previous quarter.

Then there’s Knome (pronounced ‘Know Me’), a collaboration tool based on social networking and gamification, which has more than 250,000 active users. Knome was introduced in 2012, as part of Chandra’s ‘Vivacious TCS’ vision. The idea was to “make it easy for Gen Y to integrate with the TCS culture”, says Hasit Kaji, head of special initiatives. Knome allows users to set up communities (on work and non-work areas of interest), and create wiki pages. “Anybody from anywhere in the world can start a conversation and invite others to join in,” says Kaji. “There is no hierarchy.”

A few months into its use, someone started a discussion on how Knome users wanted to use the platform: mobile or desktop? A mobile-enabled channel was soon set up, which measured user participation and performance over the next three years. “The exercise made us more sensitive to customer needs,” says Kaji, explaining how users and developers showed digital thinking in addressing the question.

Knome is not commercial. But it has had an impact on how employees deal with clients. Analysing user experience on Knome (using analytics) helped TCS gauge the difficulties of collaborating on a mobile platform. “The four-year journey helped us understand what a client will face from an adoption and cultural point of view. [It] made us sensitive when we had to advise clients on their transformation and adoption of digital,” Kaji explains. “Digital is now in the fabric of our organisation.”

What digital has also done is help TCS grow its non-linear revenue, that is, revenue that is generated without investing in more people. In 2011-12, TCS raked in Rs 11,569 crore of incremental revenue over the previous fiscal, and needed 40,000 new employees to do this. In FY2015, it added Rs 13,000 crore of new revenue with employee addition of only over 19,000 persons. More revenue, fewer people added.
Ajoyendra Mukherjee, executive director and global HR head of TCS, says the aim is to arrive at the right mix of “people and platforms”. He adds that enterprises will always need help from IT; it’s up to TCS to replace billable employees with a product or platform.

That still leaves unanswered the vexing question of what “digital” is. Rather than spew more jargon, Chandra describes digital in terms of outcomes. “Technology [today] gives you the ability to look at problems and respond in real time,” he says. “The outcome can be a unique customer experience, or a new business model, or cutting wastage.” To further simplify, in 2012, Chandra shared a target with his top managers: Take the digital business to 10% of revenue by 2015. TCS crossed that mark in June 2015, touching 12.5% or about $2 billion at its annualised revenue run rate. By December, digital’s share in revenue had jumped to 13.7%.

Venguswamy Ramaswamy, Global Head, iON
Venguswamy Ramaswamy, Global Head, iON

Is this $2 billion great in relation to other companies that earn from digital? Accenture, for one, grew its digital revenue by 35% to $7 billion in 2015. But that was on the back of a sustained marketing campaign; TCS grew with minimal marketing spends—even as the company continued to spend on training its employees to think digital. If offshore delivery helped TCS run a more profitable company, the digital wave across its workforce will capitalise on that.

Towards the end of last year, Chandra claimed TCS had reached a sweet spot vis-à-vis competition. “There is a significant advantage that TCS has because of the investments we have made, whether it is in terms of training talent or in terms of intellectual property,” he told Anantha Narayan, director (equity research), Credit Suisse, over an analyst call.

The jury is still out on that claim. Globally, the companies setting the pace in digital are still IBM and Accenture. IBM boasts a retinue of deeply loyal clients, while Accenture is aggressive in marketing its offerings. “With more than 28,000 professionals, Accenture Digital is the world’s largest end-to-end digital capability and works with many industry leaders,” Pierre Nanterme, the company’s chairman and CEO, told shareholders in December 2014. Its headcount of 358,000 is comparable with TCS’s. A back-of-the-envelope calculation shows Accenture’s revenue per employee is 1.8 times TCS’s, though TCS has better profit margins.

TCS can offer a 15% to 20% cost benefit compared with IBM because of its time-tested global delivery model, but relationships are hard to break. That said, digital is proving to be a level playing field because there is now a strong element of creativity—not just engineering—in solving customer problems.

And that leads back to Chandra’s focus on getting his crew up-to-date. “There is definitely a premium on digital skills,” says Subramanian. “In program execution, there is always a higher-end phase of ‘think’ work before the ‘build’ work. This ‘think’ aspect has always been differently priced. That will continue under digital.” All good stuff, no doubt, but has it helped getting customers away from, say, IBM? That’s not going to be easy, given Big Blue’s historical relationships, but for TCS to be mentioned along with an IBM means its focus on digital is paying off.

“Is there any (digital) player doing so well that they have conquered the market? The answer is “no”, says Balaji Mahaligam, director at International Data Corporation India, an advisory firm that specialises in IT, telecommunications, and consumer technologies. “It is visible in B2C (consumer Internet), but starting to play out—a relatively newer phenomenon—for enterprises. It is the agility of the services vendor that we are measuring. Innovation and transformation of the vendors are at different phases, but the vendor who puts services at the forefront, rather than inventing the technologies to solve a problem, will win.”

Competition in India is playing out a little differently. “It is not about being at the bleeding edge of technology,” says Anant Gupta, CEO of the $6 billion HCL Technologies. “We see if digital gives us a first-mover advantage from the point of view of acquiring the customer.”

The $12.4 billion Cognizant Technology Solutions has typically used a consulting-led strategy based on its client industry knowledge. This February, its CEO Francisco D’Souza noted in an earnings call that most clients cannot make an immediate clean transition to a digital technology backbone. “Clients will typically build a digital architecture on top of their legacy technology and the integration between these two layers is a very critical part of the transformation. Our intimate knowledge of our clients’ legacy combined with our leading-edge digital capabilities gives us an edge here.” To stay competitive, Cognizant has been making small buyouts to drive the digital agenda.

To take the thinking to the next level, Chandra is now planning an Executive Digital Centre in Mumbai, where potential clients can experience how TCS’s digital nous is transforming businesses. TCS has a similar studio in the Silicon Valley, overseen by Satya Ramaswamy, the company’s global head of digital enterprise. The accent on experience rather than functions is key to Chandra’s vision of the future. “If you were to buy a product five years ago, comparisons were always based on functionality,” he says. “Today, comparisons are based on experience.”

Pallavi Jha, managing director of Dale Carnegie Training India, says it is Chandra’s ability to effortlessly articulate home truths like these that makes him the best person to lead TCS into the digital age. “The business is constantly shifting. You have to prepare your people constantly too,” Jha says. “TCS really gets this. It’s not a fluke.”

There are other reasons Chandra inspires confidence. He has proven his élan with numbers—people close to him say he goes into a cave a week before the quarterly results, to absorb the numbers of all of TCS’s 60 subsidiaries. In 2009-10, TCS had 409 million-dollar client accounts, apart from seven $100 million deals. Five years later, the corresponding figures were 791 and 29. In effect, Chandra’s teams doubled the number of small deals, and quadrupled the big ones. Recently, TCS became the most-valued enterprise services company in the world, after IBM.

“People like Chandra are not followers. When Chandra says ‘Let’s go’, it’s ‘Go’,” says Ajit Melarkode, managing director for Asia-Pacific at Rackspace, a managed cloud computing company. “When he started running, he must have been 44. He just took it up and did it. And many at TCS took up marathon running after him. So when he decides TCS will go digital, they’ll just do it.”

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